Argentina to face more pressure over write-off

A group of US bondholders will make an aggressive counter-proposal in New York on Wednesday to the Argentine government's debt-restructuring offer, which creditors unanimously rejected when it was announced in September.

The Argentine Creditor Advisory Group, which comprises members of the Argentine Bondholders' Committee - a group that claims to represent institutional investors holding $7bn (?5.9bn, £4.1bn) in defaulted Argentine bonds - will demand that Argentina writes off just 35 per cent of the nominal value of more than $80bn currently in default. Argentina has said it must write off 75 per cent to make the restructuring sustainable.

The proposal also demands that Argentina repay about $18bn of past due interest (PDI) on the defaulted debt.

Specifically, ACAG says the government should pay creditors 5 per cent of PDI upfront, and cover the remainder with a 14-year bond with a 7.25 per cent coupon. So far, Argentina has said it will not pay any PDI.

ACAG will propose that Argentina restructure the defaulted debt by issuing three types of bonds - with maturities varying between 10 years and 30 years. That would entail a net-present-value debt write-off of about 60 per cent. The government's current proposal implies a net-present-value loss of 92 per cent.

The counter-offer is designed both to force an improvement on the government's original proposal, described as "barbaric" by some bondholders, and to combat what creditors see as deliberate foot-dragging on the part of Argentina's authorities.

Roberto Lavagna, Argentina's economy minister, riled bondholders recently by hinting that the government might not keep its promise to present a final offer by the end of January or the beginning of February. "We are making a mistake if we think this has to be resolved over a number of months," he said. "There are companies in the private sector that take one or two years to negotiate their debt."

Creditors are also losing patience with the government's insistence that it cannot afford to improve its restructuring offer, particularly given the economy's robust recovery and record tax receipts.

Néstor Kirchner's government has rejected criticism that it is stalling the renegotiation process, and confirmed last week that it was on the verge of naming which of seven investment banks it would assign to underwrite the new bonds.

The seven banks - ABN Amro, Barclays, Dresdner Kleinwort Wasserstein, Goldman Sachs, Lehman Brothers, Morgan Stanley and UBS - were the only banks from a list of 12 top emerging-market debt underwriters to send proposals to the government.

Those that declined - Citigroup, Deutsche Bank, JP Morgan, Nomura Securities and BNP Paribas - are believed to have had grave doubts about the level of acceptance the new bonds would have among creditors, and about the unusually high level of commitment demanded of the banks by the Argentine government.